Case Study

Davis Polk

A Bulletproof Headquarter Renewal in a Turbulent Capital Markets Environment

August 1, 2023

Skyscraper with blue glass and decorative top against a blue sky.

Overview

Davis Polk had an affection for its well-located 1990s building which the firm also helped design. However, both the building and Davis Polk’s 650,000 square feet of space were outdated compared to available new developments in NYC.  Facing a disruptive renovation and premises no longer large enough to accommodate the firm’s dynamic growth, new construction was a high probability.  Against the backdrop of an uneven market, uncertainty caused by the pandemic, and an unpredictable future work environment, Davis Polk re-engaged CBRE to assist the firm in identifying viable long-term occupancy alternatives and negotiating a transaction befitting of the firm’s size and prominence.

  • 700,000

    Total Square Feet

  • 35%

    reduction in effective rent

  • $4M

    per year run rate reduction

  • Bonded

    Joint venture capital guarantees and lender recognition assures Davis Polk will receive the benefit of its bargain

Modern office lobby with gold ceiling panels and people walking.
Proposed lobby and signage. Rendering courtesy of Gensler.
Stylish bar area with people socializing and greenery.
Proposed sky bar. Rendering courtesy of Gensler.
Rooftop terrace with seating, plants, and city view.
Proposed terrace. Rendering courtesy of Gensler.
Office interior with stairs, glass walls, and people.
Proposed reception area. Rendering courtesy of Gensler.

The Solution & Result

  • Following a full market evaluation, CBRE identified and commenced in negotiations with developments which could meet Davis Polk’s space and timing requirements and provide anchor tenant rights and pricing.  Through months of negotiations and due diligence, two developments were prioritized and detailed term sheets negotiated.
  • In parallel, CBRE worked to identify space in Davis Polk’s existing building which could accommodate the firm’s immediate and future growth needs, along with developing a phasing plan to minimize the timing and disruption associated with a full renovation and coordinating efforts to design significant upgrades to the building lobby, skylobby and infrastructure.
  • Having recently relocated a law firm of comparable size from another building owned by Davis Polk’s landlord, CBRE knew their landlord was highly motivated to retain Davis Polk.  Given the state of the capital markets, however, we also knew that leveraging this situation would require an equity infusion by ownership coupled with a Davis Polk commitment in order to secure a required building refinancing.
  • Davis Polk preferred its current proximity to Grand Central and the thoughtful design of their building with floor plates which were more efficient than new construction alternatives.  However, new construction offered benefits that their existing building could not, including a new lobby, branding, outdoor space and other amenities.  
  • CBRE leveraged the stability that Davis Polk’s occupancy could bring in the face of an upcoming loan maturity and a difficult underwriting environment to compel its existing landlord to provide for a full renovation of the lobby and skylobby (with significant branding and a dedicated lobby desk and reception area), the creation of significant, dedicated outdoor spaces, highly attractive economic terms (including an outsized concession package), and the early delivery of an additional floor to ameliorate renovation disruption.
  • CBRE negotiated a 20-year renewal commencing in 2027 which will lower Davis Polk’s run rate by $4 million per year (a 35% reduction in the firm’s effective rent), allow the firm to remain in the highly desired Park Avenue/Grand Central submarket, protect the firm from capital markets risk through a complex series of landlord and lender guarantees, and provide the benefits of a fully renovated office building with dedicated outdoor space and bespoke amenities.

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